Ever since the inception of digital assets, Bitcoin futures have arguably been one of the most intriguing trading items to come out of the market. By allowing for speculative investment, they have encouraged a broader interest in the cryptocurrency field outside of the industry, broadening its attractiveness and increasing the likelihood of widespread adoption. It has captivated even the most powerful financial institutions, such as the Intercontinental Exchange, which has benefited from its universal appeal (ICE). Here are five things that every rookie crypto investor must know about Bitcoin futures-
1. What exactly are Bitcoin futures?
Futures contracts are not only based on commodities but also can be based on economic instruments, such as stock market index futures, for instance. There has also been the option to trade Bitcoin Futures since December 2017.
Investing in Bitcoin Futures allows you to speculate on the price of Bitcoin in the future — without having to actually possess any Bitcoin. In every respect, they work the same way as futures contracts on traditional financial assets. If you believe the price of Bitcoin will climb in the future, you may take a long position; if you already hold Bitcoin, you can take a short position to reduce the effect of prospective losses.
2. Long and short positions
The long position of one party in a futures contract is offset by the short position of the other party in the futures contract. Whenever you require a long position, you agree to purchase the fundamental asset in the future at a certain price whenever the contract expires, which is known as the strike price. When you take a short position, you agree to sell the asset at a predetermined price at the expiration of the contract.
The pricing of bitcoin futures, as well as the current value of bitcoin, tend to differ depending on the settlement method used by futures dealers at the time of the transaction. More individuals betting just on the price of bitcoin rising indicates that the value of the contract will naturally be greater than the current market price of bitcoin, as seen in the chart below. When a greater number of traders predict that perhaps the price of bitcoin will decline in the future, the opposite is true. As the expiration date of Bitcoin futures contracts approaches, the values of bitcoin on spot exchanges and the prices of Bitcoin futures contracts tend to converge.
4. Trading Bitcoin futures
Before you may trade any futures crypto, particularly Bitcoin futures, you must first ensure that your funds are completely cleared in your account. Deposits made through the ACH and Express Funding channels might take 3 to 4 working days to process. Wire transfers are processed the very same business day they are received.
While futures contracts still involve their own set of risks, which are frequently large, they might possibly have a much more regulated as well as stable environment in which to get exposure to bitcoin as just a commodity as well as a financial instrument. If you have any relevant experience, goals, financial resources, or even other relevant factors, you must carefully examine whether bitcoin futures trading is right for you.
5. Governing regulation
Arguably one of the most widely publicized and contentious benefits of Bitcoin futures contracts is the ability to hedge against inflation. Despite the fact that many crypto enthusiasts feel that the regulated environment kills the libertarian essence of cryptocurrency, which was created to be free, the vast majority of market participants believe that regulation is an essential step on the path to widespread acceptance of Bitcoin. The futures markets are governed by the Commodity Futures Trading Commission (CFTC), which is far less stringent in its regulation than the Securities and Exchange Commission (SEC). Investors and speculators have equal opportunities to participate in the market since the rules are well defined. Fraud prevention and predictability are also ensured by the regulations.
Now you are the fundamental of Bitcoin futures, so it will be easier for you to start investing or trading this cryptocurrency. However, always try to get help from a professional before making any investment division.